An improving operating backdrop in the form of lower tax rates, rising interest rate environment and expectations of lesser regulations has driven investors’ confidence in banking stocks. Therefore, some of these stocks are profitable additions to a portfolio, based on strong fundamentals and solid long-term prospects.
TD Ameritrade Holding Corporation (AMTD - Free Report) is one such solid option right now. The company’s strong trading volumes, client focus and cross-selling opportunities are anticipated to yield positive results for the stock.
Also, the interest rate hikes are likely to provide stability to the top line, which will create buying opportunity for long-term horses. Despite lack of diversity in TD Ameritrade’s operations owing to its concentration in the United States and escalating costs, its sharp focus on organic strategies will likely make its growth path smoother.
With net new client assets worth about $26.5 billion as of Dec 31, 2017, TD Ameritrade’s strengths include a sturdy top line and earnings growth, trading activities as well as steady capital deployment.
Further, the company’s shares have rallied 50.4% in a year, outperforming 22.3% gain of the industry.
The company’s earnings estimates have also climbed nearly 1% for fiscal 2018 in the last 30 days. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Why is TD Ameritrade a Must Buy?
Inorganic Growth Strategies: TD Ameritrade’s growth prospects look encouraging, given the acquisition of Scottrade Financial Services. The transaction is expected to result in significant scale to the company’s retail business, fortify trading operations and expand its branch network substantially. Also, management expects to realize synergies of $175-$225 million in fiscal 2018 from the acquisition.
Strong Organic Growth: TD Ameritrade continues to be a leading asset gatherer, with nine consecutive years of double-digit net new client asset growth since fiscal 2008. Notably, during fiscal 2017, the company witnessed an annualized growth rate of 10% in net new client assets, within its long-term target of 7-11%. The increasing trend in client assets was witnessed in the first-quarter fiscal 2018 as well.
Additionally, the company’s net revenues witnessed a 5.6% compounded annual growth rate (CAGR) in the last four years, ending fiscal 2017. The company’s projected sales growth rate (F1/F0) of 41.3% as against 3.5% industry average, indicates consistent improvement in revenues.
Earnings Strength: Over the past three to five years, TD Ameritrade witnessed earnings per share (EPS) growth of 9.33%. Notably, the company recorded an average positive earnings surprise of 17.07%, over the trailing four quarters.
Also, earnings momentum is likely to continue in the near term as reflected by the company’s projected EPS growth rate (F1/F0) of 65.3% compared with the industry average of 31.2%.
Strong Trading Activity: TD Ameritrade’s trading volumes have been depicting an uptrend. On a year-over-year basis, the company’s average client trades per day increased 4%, 14% and 8% in fiscal 2013, 2014 and 2015, respectively. The upside was driven by volatility in markets. Also, average client trades increased modestly in fiscal 2016 and around 10% in fiscal 2017. The first three months of fiscal 2018 witnessed growth in average client assets as well.
Superior Return on Equity (ROE): TD Ameritrade’s ROE of 18.27% compared with the industry’s average of 10.07% mirrors the company’s commendable position compared to its peers.
Other Stocks to Consider
E*TRADE Financial Corporation (ETFC - Free Report) has witnessed an upward estimate revision of nearly 1% in the last 30 days. Additionally, the stock has rallied more than 55% in the past year. It carries a Zacks Rank #2 (Buy).
Interactive Brokers Group’s (IBKR - Free Report) earnings estimates for the current year have been revised nearly 1% upward over the last 60 days. Its shares have gained 91% in the past year. It sports a Zacks Rank of 1.
Moelis & Company (MC - Free Report) witnessed an upward earnings estimate revision of 4.2% for the current year, over the last 30 days. The company’s shares have soared around 37% in a year’s time. It also carries a Zacks Rank of 2.
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